My homeless bird dog sent me a bunch of vacant addresses to check out. I sent them over to my girl at the Title company and got all the owners names and mailing addresses. Of course I sent out my yellow letters. A week later one lady calls and says she received my letter but the house sits on 60 acres and she don’t want to sell the house separately with the hopes of selling to a developer. She explained it belonged to her Grandfather and then her Uncle and she inherited the property from him. She now lives in Washington and the property sits here in Central California.
It was only a 20 minute drive so I decided to check it out. The house was toast, all broken windows, porches falling down, huge trees and several barns, I could tell that 50 years ago this was a gorgeous piece of property.
I was disappointed cuz I knew this 100 year old house was not worth saving. Then I got an idea, maybe I can get the land on contract and flip it.
I been working with a Realtor and asked her what she thought I could sell it for. She actually went out to the property with one of her coworkers and called me to say comps were coming in at 40K an acre and thought we cud sell it easily for 30K an acre.
I decided I wanted to get it on contract for $20K an acre or less and make some serious profit.
I called the seller and told her I wanted to buy the 60 acres and offer her cash. She seemed startled. I asked what kind of price was she thinking, she told me she didnt know what its worth. I told her I would pay $800,000 Cash, She says Oh My, but we were hoping to get more than that. I finally told her I could do 1 Million. She says there are a couple of organizations interested, I’m gonna have to talk to them and get back to you.
I don’t have any idea if I can flip this property to a developer, but it will sure be fun trying.
My bird dog will get 50% of any profits, he don’t have a drivers license or bank account and uses the public library to email me vacant house addresses. I can’t imagine what would happen to him if he hit the mother lode.
You got my juices going on this post… (sorry for the length, and possible boringness)…
Speaking editorially, if this were us, we would make a written offer, instead of throwing out verbal offers over the phone, and just giving up nearly a quarter million dollar position ‘just because.’
We would send the seller a formal, written offer asking for more than we wanted in our offer, so that we had something to give up, and horse trade with.
Anytime we give up “something” for “nothing,” we look like liars and cheats, and the sellers won’t trust that anything we ask for is in good faith, or legitimate.
Negotiating for "satisfaction’ doesn’t just come from getting a price. It comes by having the seller (and buyer) “fight” to give up up their position in order to achieve satisfaction in the deal.
It’s nearly always about the fight, but not always about the price.
Meantime, I think ‘we’ve’ made it ridiculously easy for the seller to say no, and shop our offer, because we didn’t put the offer in writing, and didn’t get anything in return for moving off our initial $800,000 cash offer.
That all said, we want to see you steal this property, but it’s not gonna happen making verbal offers, and not forcing the seller to work for the deal.
As an aside, the seller is subconsciously working to achieve her own satisfaction in the negotiation, because we aren’t helping her… And now she’s making US work, by shopping our verbal offer.
She may not find a better buyer, but she’s gonna fight to give away this property, and by gawd she’ll do it at our expense, if necessary.
Our first offer needed to have a ‘porch load’ of crap included (that we didn’t necessarily want, or need).
This way, we had something to give up, in order to get what we really wanted; an $800k price tag.
When we don’t load up the front porch, and just give up our position, we take the legitimacy out of our initial offers and look like we weren’t serious, or worse; liars.
Loading the front porch might mean asking the seller to raze the barns, raze the house, plow under all the weeds, scarify the entire acreage to dirt (to discourage any endangered, five-horned, weasel rat from living on the land, and giving the environmental whacko/inspectors a reason to keep us from developing/reselling the land).
Otherwise we want the land ready for engineering and surveys, not to mention we want the horse corral/stalls fixed (and readied for horse boarding), and the water meter, electrical service, and gas lines restored.
Of course we don’t expect the seller to give us these things, but all of the sudden we’ve got a half dozen things we ‘can’ give up, in return for maintaining our clean, $800,000, cash offer, which serves to create satisfaction in the seller about the steal price she’s giving us.
Let’s say the seller counters at $1M, and rejects the entire front porch of requests…
YOU:
"Oh, you mean you won’t clear the land, raze the barns and house, and bring all the utilities back on line? Well, that’s going to cost us nearly seventy five thousand dollars before we can even think of doing anything with the land, and that’s ‘partly’ how we justified our $800K cash offer.
Of course we’ve also got surveys, zoning changes, lot splits, plans, ??, and this all adds to the development costs. So, those costs have to be considered before we can pay one dime more than $800,000 in cash.
Oh, you still want a million? Well, obviously cash isn’t as important to you, so we are prepared to give you one hundred thousand dollars now, and the remaining nine hundred thousand over thirty years."
Well, we end up not getting the houses, barns, and land scarified, or the utilities turned on, but by gawd we only had to pay $850,000 for the land, instead of $1M.
And… most importantly, we gave the seller satisfaction in the negotiations, which allowed us to get nearly our price and/or terms.
You get the gist.
As an aside we put our offers/counters in writing; start low; trade up slow; give ‘reasons’ for everything we ask for; insist on deadlines for a counter, especially if the seller’s shopping our negotiations, and mark up the original contract offer/counters so the seller can see the progression of the negotiations in black and white.
Clean verbal offers equal BAD negotiations, and poor results …and it’s made worse if done by phone.
It’s much more effective and profitable, to get in front of the seller, and meet them face to face.
It’s harder for them to reject our offers and requests.
If we don’t force the seller (and ourselves) to work for the deal, the deals are just not likely to close.
Everyone needs to feel like they’ve worked for the outcome. The work may have come well before the negotiations started. The seller might have “worked” through two or three failed escrows and by the time our offer came along they were ready to agree to anything that relieved their pain. We can’t always know.
This brings me to my last point in this novella… :banghead
The sellers that are the easiest to bring satisfaction to, are the ones that are already out of gas. Making (closing on) a porch-loaded offer to them is almost like a cutting butter with a hot knife.
That’s it. :beer
Holy mother of all creatures. You made me realize how little I know.
I will draft a formal purchase proposal
and and use all the tactics you suggest.
Where should I send your consultation check?
Rando
The ONLY thing I want is for you to close on this deal…
:beer
Hi,
I am not sure the advice you have received is really relevant or correct for this situation. Land is available everywhere and although they are not making land anymore, their is still plenty available.
You are referring to a raw land parcel of approximately 60 acres, you need to be careful of what, where and why that parcel having never previously been available is now a prime purchase for a developer.
If you go to for example LoopNet and do a search for land within the city your target property is in you will find out just how many commercial / residential properties are available and see what stage of development each land parcel is in. For you to assume that just because there is 60 acres you could immediately flip it is terrible planning.
Unlike single family homes, condo’s or townhouses where both owner occupied buyers and investors have desire to purchase, land has a very limited buying pool, and even worse when it is raw land as their is no current zoning, best use, design or planned development yet and raw land can take years just to get to a point of entitlements, let alone time and money to install site utilities and access streets and sidewalks.
I think of central California as the San Joaquin Valley as I have always thought of the San Francisco bay area as northern California and Los Angeles, Orange County and San Diego as southern California.
I build and develop commercial property, mostly for my own portfolio but will sell a few properties during the year, I have a good friend I have mentored for over 10 years who now is in the residential tract home industry and very rarely do developers look for raw land, as we prefer land parcels which have been planned, zoned and entitled for a specific use to build on.
It could take 2 or 3 years to go through the process just to get to that planned, zoned and entitled position let alone installing site utilities and on / off site hardscape.
Unless your planning on spending hundreds of thousands of dollars going from raw land through the design for usage / mixed use and will pay the costs to develop this it may not be a good deal. It’s great you might buy it for 40% of FMV, but if there is no demand for this type of property and an abundant supply around you I would pass.
After all reputation is everything and this type of project, if you fail will be all around town and the county in a New York minute. And if FMV is really $40k per acre and word get’s around you were trying to rip this lady off by buying it to cheaply it could ruin you to!
Just because it’s there does not necessarily make it an investment let alone a good investment!
Good luck,
GR
And if FMV is really $40k per acre and word get's around you were trying to rip this lady off by buying it to cheaply it could ruin you to!
I think only competitors pay attention to the price paid. And they don’t count for beans.
Gold River, This topic you brought up goes along with having the right mindset and how you perceive things. My thoughts are, this seller will be getting $800- 1 Million dollars for land she inherited, She will be able to enjoy life more and help her family. This is property that was just sitting there benefiting no one. She’s paying thousands of dollars a year in Taxes and paying to have the property plowed down 2-3 times a year or face fines for fire hazard. There are dwellings on the property that are an injury hazard. She lives in another State, couldn’t sell it, bad economy etc.
If I can get it for half of what it might be worth do you think developers might be interested? Do you think they will complain their getting it too cheap and worry about the seller?
There are not any parcels of land available of this size in the city
Your saying it cant be done. Should I just give up and not even try?
Your negativity has jump started my enthusiasm for this project and I will try 10 times harder to make it happen. Thanks.
Hi,
I wouldn't have it any other way Randoskie, every man must learn in his own way and in his own time.
She owns the land and can lease it to a local farmer to receive rental income to offset the cost of the raw land taxes. Her property taxes are as agricultural land so pretty cheap!
If she couldn’t sell it what makes you so sure you can sell it? Your not doing this to receive a boy scout merit badge and your intending to raise the price to make a profit so getting it for half of what it’s worth does not benefit the developer!
I was always taught to make real estate a win / win for everybody, that where ethics and business principles override greed and the all mighty goal to make a buck, but were not the judge here and I don’t have to live with what you do in this deal.
I never said it can’t be done but most developers including myself may spend months learning an area’s market before pulling the trigger and believe me I know every little land parcel for sale in my target market as it’s the difference between paying to much.
I personally have ethics and principles I live and die by in business, I have no expectation as to whether anyone else does?
If this property is currently worth $30k per acre my offer would be $1,260,000 as 70% of $1,800,000!
If this property is currently worth $35k per acre my offer would be $1,470,000 as 70% of $2,100,000!
If this property is currently worth $40k per acre my offer would be $1,680,000 as 70% of $2,400,000!
Now if this 60 acres was to become single family lots this would accommodate roughly 175, 6500 sq. ft. lots.
Now cost just to design, apply and get a PUD from start to zoned and entitled lots will cost more than $2500 per lot.
The time to clear the environmental assessment will take over 12 months.
The cost to install site utilities, prepare and grade lots and install access streets and storm drain over $20k per lot.
For those of you watching this, it amounts to about $6m dollars just to get to a point of preparing to build! It also makes each lot’s cost about $30k each wholesale which means it will need to support a $200k minimum product! (Estimated retail sales price.) At over $100 dollars per sq. ft. minimum.
Now the key trick is do you think you could find a buyer in 10 to 30 days to assign or create a new contract to sell for a closing in 45 to 90 days? And this buyer will need to be willing to spend $6,000,000 dollars for a PUD, Environmental, Zoning and entitlement process with site work engineering to say build homes in 3 to 5 years?
I don’t have a negative attitude at all I am voluntarily participating in a forum and giving of my time and expertise, but since I have been building and developing commercial property for most of my life I suspect I have a little more knowledge and experience on the subject.
GR
Hey Gold River, When I walked the property I noticed it had a concrete pad where a pump used to be. Can you imagine these low life copper thieves eyeballing a new shiny pump? And she did mention that years ago she used to lease the land to local farmers. And several times they stole the pumps.
She pays about $3,600 a year in Property taxes, maybe that’s cheap to you. I’m sure it’s a struggle for her.
All the expenses you stated is another good argument for getting a good price on the land to make it feasible for a developer to buy it.
When I buy a junker house for 30-40 Cents on the dollar and with the rehab costs, it has to be low enuf or I cant sell it. I can see paying 70% of value in a booming economy, but not now.
I may only be an ignorant wholesaler but I believe the same principles apply, buy low and add some profit. The seller gets a good chunk of cash, the buyer gets a good deal and I make a bit in the middle, sounds like a win win to me.
I also believe in Karma, and I would be proud to help this seller get a million dollars and get a developer a good price on some prime property and to make a healthy chunk of change for me and my bird dog.
Hi,
Good Luck,
Gold River
Nothing like spirited debate, with a lot of great comments! It’s OK to make mistakes, just don’t make the big mistake that will destroy your long term plan.
Best of Luck!
randyscott